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Jan 1, 2007 (Vol. 27, No. 1)

Offshoring R&D Activity

Balancing the Right Opportunities and Risks

  • The underlying theme throughout a series of discussions at a session on outsourcing drug discovery and clinical development programs to Asia at the recent “Biotech 2006 NJ/PA” symposium was the immediate need for innovative solutions to reduce the cost and increase the speed and productivity of all phases of R&D required to bring a safe and effective drug to market.

    Offshoring components of discovery, research, and clinical trials offers unique opportunities, especially in terms of access to study subjects, trained personnel, lower-cost infrastructure, and labor pools. However, emerging opportunities in Asia are not without significant potential risks, and companies considering this route were cautioned to keep a close eye on contract and licensing terms, quality control measures, regulatory issues, and timelines. Above all, a clear understanding of cultural differences, an active presence on-site, and help sought from experienced colleagues, consultants, and intermediaries can facilitate long-distance interactions and minimize unanticipated obstacles and delays.

    A session entitled Offshoring Clinical Trials: Where, Why, and How? moderated by Nyan Nanavati, vp of Parexel International (www.paraxel.com), stemmed from the projection that biopharmaceutical companies will double their clinical research in developing nations over the next three years. The participants explored potential operational challenges and strategies for managing offshore trials.

    Nanavati set the stage for the discussion by noting that capital costs for biopharma increased 481% from the 1970s to the 1990s. The cost of bringing a new drug to market is now between $800 million and $1 billion, and only one of five commercial products will reap a profit. Cutting clinical development costs in half would reduce the total cost per drug from approximately $802 to $568 million, predicted Nanavati.

    One definite trend in offshoring identified by Nanavati was that in 1995, 9% of NDA submissions to the FDA included data from offshore trials, and in 1999, that figure rose to 27%. Also, the number of overseas, FDA-sanctioned trials increased from 1,000 to 7,000 between 1991 and 2000.

    Nanavati warned against the craze to “offshore everything. We can’t just take our problems and throw them somewhere else.”

  • Dwindling Patient Pools

    Worsening enrollment delays and the inability to recruit sufficient numbers of patients in a timely manner were two key problems mentioned by Nanavati.

    Carol Cruickshank, vp for A.T. Kearney’s (www.atkearney.com), pharmaceutical and healthcare practice, presented the results of the company’s recent study, Country Attractiveness Index for Clinical Trials, which provides a structured, data-driven tool for comparing the attractiveness of 15 geographic regions. Based on five main factors—patient availability, cost, relevant expertise, regulatory conditions, and national infrastructure—the index identified China and India as having the highest, most-favorable scores, followed by Russia. Taiwan and Singapore scored quite a bit lower.

    China offers large patient pools, the necessary expertise, and cost efficiency but it clearly lagged in infrastructure, said Cruickshank, an area in which Singapore more closely mirrors western countries.

    A large population base is not enough to make a region attractive; the demographics should be relevant to the study needs, and the potential subjects need to be accessible for participation in trials. Urban populations are typically targeted because the individuals are more likely to visit physicians, undergo treatments, and use pharmaceuticals, noted Cruickshank. The index, Cruickshank explained, is a tool to support decision-making for conducting offshore clinical trials.

  • Outsourcing to India

    Productivity in the pharma industry is down and costs are up. “The numbers are pretty scary,” said James Taylor, worldwide head of contracting and outsourcing at Pfizer (www.pfizer.com). Taylor spoke about the steps Pfizer has taken to improve speed, quality, and cost in drug development. With studies ongoing in 11 therapeutic areas, contracts with as many as 50 different CROs at one time, and a host of niche service providers, managing and leveraging global resources and standardizing procedures are significant challenges for big pharma companies such as Pfizer.

    More than two years ago, Pfizer changed its sourcing strategy. The company no longer outsources by compound; it is now aligned functionally (rather than by project teams), with functional groups working with local sites to pursue lower-cost regional models. This has pared Pfizer’s sourcing partners to 16 providers/CROs and allowed it to leverage economies-of-scale and to take advantage of more cost-efficient local sources.

    Taylor presented on Pfizer’s experience in India, describing the country in general as having moderate maturity in operational and technical skills, with an improving learning curve. High demand for talented and experienced labor makes turnover a huge challenge in this emerging market. He urged companies to maintain a buffer of pooled labor and resources.

    Risk management is another important consideration. Although access to technology is much improved in India, companies should anticipate and plan for service interruptions such as those caused by floods and railway explosions.

    Describing Onconova Therapeutics’ (www.onconova.com) rationale for offshoring trials, Ramesh Kumar, Ph.D., co-founder, president, and CEO of the company, identified rate of enrollment as the primary driver. Slow recruitment is the biggest barrier to successful trial completion.

    Onconova has core competencies in discovery to early development, with a focus on cell protection and cancer therapeutics. Offshoring allows Onconova to diversify its subject pool to include a variety of cancer types, prior therapies, and standards of care. In Mumbai, India, as in the U.S., lung and breast cancer occur with the highest incidence in men and women respectively. However, the rank order then differs, with higher rates of cancer of the esophagus, cervix, larynx, and ovaries in the Indian population compared to the U.S., offering companies such as Onconova access to larger patient pools for these types of cancer.

    Onconova’s strategy is to work only with offshore investigators that attend the American Society of Clinical Oncology’s annual meetings, which gives them common ground and facilitates integration with U.S. development efforts.

    Dr. Kumar described the cost advantage of offshoring as an “incidental benefit, not a driver. Don’t bother going offshore to lower costs; it’s not worth it.”

    What brought India into the clinical trial equation? Dr. Kumar pointed to the World Trade Organization as the biggest driver, by mandating changes in the business environment that require India to respect patents. Other key factors include emerging private-public partnerships, such as the Bill and Melinda Gates Foundation; a shift in the focus of the Indian pharma industry from process to product; and the evolving Indian economy, which is changing from a largely agricultural to a more high-value base.

    Dr. Kumar outlined several factors to consider when exploring the option of offshore trials: physician training, which may be minimal, with no or limited experience in clinical studies; logistical concerns, such as global transport connections for central lab shipments and availability of dry ice; differences in how Investigational Review Boards function; the need to invest in monitoring and to hire monitors that are independent of the hospital or CROs; data and sample transfer issues; and the importance of establishing influential contacts in the country of interest to help navigate the regulatory process.

  • Catching the Wave

    Ulrich Grau, Ph.D., president and CEO of Lux Biosciences (www.luxbio.com), echoed that the primary motivator for pursuing offshore clinical trials is access to naive patients, followed by the speed and cost of doing clinical studies overseas. Advantageous characteristics of the Pacific Rim countries include their demographics, centralized/social healthcare system that is conducive to performing clinical trials, and the rapidly growing competencies, especially in India.

    Dr. Grau described cost as a big differential, particularly in China, and a moving target, with gaps closing rapidly. The cost gap is closing as quality and infrastructure improve, warned Dr. Grau.

    “The Eastern-European wave was good for five to seven years,” he added, but Eastern Europe is now fully mainstreamed and conducting trials there can no longer be considered offshoring. “The Indian wave may be good for a decade or more,” Dr. Grau predicted.

    A subsequent panel discussion shed light on several issues, including the potential opportunities in Africa, South Africa in particular, although this region lags behind Asia in general.

    “How does a company not end up in a morass?” asked one audience member. “The burden is on us, the industry,” responded Nanavati. “Have we taken enough safeguards to protect ourselves?”

    Dr. Grau urged companies to apply the same ethical standards they would in western countries and to be more careful.

    In the U.S., “eighty percent of our patients come from twenty percent of our investigators,” said Taylor, and 70% of investigators try one trial and never return. “Companies need to use what experience has taught them here to make sure we don’t help the same problems develop offshore.”

  • Cultural and Quality Issues

    Partnering in Asia should focus on leveraging a country’s or region’s core competencies. For example, India is strong in chemistry and weaker in biology, whereas China excels in biology and offers a strong supply of nonhuman primates for disease modeling. Jonathan Northrup, CEO of Horizon Biotechnologies (www.horizonbiotech.com), described this as “a hidden treasure of China that will be exploited in the future” by the potential to do transgenic monkey studies.

    What is holding back countries such as China, Korea, and India is GxP (good practices of any kind), in Northrup’s view. “This is a relatively new concept,” said Northrup. “The Chinese government is making strong strides.” Chinese regulators have approved 11 GLP facilities, with four additional applications pending. India is ahead of China in GxP, with excellent quality control and manufacturing capabilities, noteworthy expertise in informatics technology, and in particular, searchable databases with implications for computational chemistry and virtual discovery applications.

    Peter Wang, CEO of China Biopharma (www.chinabiopharma.com), spoke about the marketing of vaccine products in China and the importance of identifying the right product and carefully timing its introduction. He highlighted the rising demand for flu vaccine, for example, and pointed to rabies, MMR, Varicella, and next-generation pediatric vaccines as important targets. Distribution issues to consider include the size and complexity of China, limited access to refrigeration, licensing and sales issues, and local manufacturing capabilities.

  • Leveraging China's Opportunities

    Martyn Greenacre, chairman of Beijing Med-Pharm (www.beinjingmedpharm.com), outlined some of the risks of doing business in China and encouraged companies to take advantage of a change in Chinese law that permits foreign companies to own up to 100% of distributors. A major difference for therapeutics, not including vaccines, in China is that 85% of prescriptions are filled in hospitals, compared to 15% in the U.S., and hospitals in China earn 50–60% of their revenues from pharmaceutical sales. Companies promote products to physicians, targeting key decision leaders, who then encourage their hospital pharmacies to stock the products.

    Another key difference is that unlike in the U.S. or Europe, in China manufacturers have no direct contact with hospital pharmacies to negotiate the terms of supply. That is the responsibility of the distributors, which are locally rather than nationally based. China has more than 7,000 pharmaceutical distributors contributing to a complex network of relationships.

    Approximately 60% of the pharmaceuticals market in China is focused in three regions—Beijing, Shanghai, and Guangzhou. Beijing Med-Pharm has begun acquiring distributors in those regions. Greenacre explained that U.S. companies have two routes to market their products in China: either license the product to a company, such as Beijing Med-Pharm, which would manage clinical trials, product registration, and promotion or set up a company to handle Chinese operations and outsource to multiple Chinese companies.

    “If you are going to license to or partner with a company in China, understand who you are doing the partnership with and what their skills are,” Greenacre cautioned. “There is a growing commitment to doing preclinical/clinical studies in China. The quality of work can be as good as anywhere else, if you choose your partner wisely.”

    A major ongoing issue in China is IP protection. “The IP scene in China is not yet perfect,” said Greenacre, “but in my opinion, it is getting a lot better.” The crackdown parallels more aggressive prosecution for DVD copying in the country. When a pharma company files for market approval, the regulatory agency is now taking greater care to determine that the company is the actual owner or licensee of the product.

    “The Chinese are trying, at the central government level, to sign treaties and put teeth into compliance,” Greenacre added.

    C. Mark Tang, CEO of World Technology Ventures (www.worldtechinvestment.com), described Chinese patent law as being “up-to-date, a mix of U.S. and European patent law,” with better enforcement in larger cities, in general. A key difference in China compared to the U.S. is that patent violation is a criminal charge.

    The number one concern of western companies has shifted from IP to human resources, according to Tang.



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